Failure Is an Option

If there is a marketplace of ideas, Edward Jung and Nathan Myhrvold want to profit by it. The two Microsoft alumni formed Seattle-based Intellectual Ventures in 2000 to be the go-to place for creative thinking. Instead of developing new products, Intellectual Ventures has developed a portfolio of inventions, or "invention capital" as they call it, which the firm has patented and licenses to other companies. Jung, currently the chief technology officer, spoke last week from his office in Seattle with NEWSWEEK's Andrew Bast about what makes ideas valuable and why success often means putting up with failure. Excerpts:

NEWSWEEK:  Can we start with the seemingly most obvious but probably most perplexing question: What is an idea?
Edward Jung: We think of an idea as an action that causes a reaction, and that reaction creates products of value. I'll give two examples. If you made a diagnostic device that could give you early treatment of cancer, there is some very definite value: extended lifetimes, economic value, products that you could put on the shelf, and so on. But then there are other ideas like pandemic control that would clearly create a lot of value for society and people in general, but it is a little hard to figure out how you would charge for it. That is one of the things that would differentiate pure ideas from extremely applied ideas. Once you have an idea like solving pandemics, though, sometimes someone will figure out how to create economics around that, even though nobody knows how to do it today.

What, then, is a good idea?
At the heart of it, Intellectual Ventures is a capitalist company, so to us a good idea is nominated by some notion that it could be reduced to something practical. You could have an idea that is literally quite concrete, like how do you make your cell-phone battery life better. Very practical. But if you go back to the pandemic, that's also a good idea because it benefits society in general. So what we've done internally is divide goodness into many different categories, many time domains and many levels of certainty that we can actually create some economic value out of it. Some of our crazy future ideas are very risky, but because we do it at such a large scale, we can do a few of those as well as ones who are safer, more nearer term and more easily translated into economics. But good also depends on the area of technology you are in. So a good idea in computer science is measured differently than a good idea in life science.

Much of capitalism's genius is its incessant pressure to innovate. To that end, are good ideas losing out because they're not economically viable?
Let's say you're a public company. Your shareholders have a certain time horizon they have been trained to look at, and it is very difficult for your to invest outside of it. So if they are pressuring you for every quarter's results and you fail to meet those results, you're punished and naturally you're not going to be investing further down the chain. If part of your brand is to be very future-looking, however, then your shareholders will have much more patience. What is economic depends on where you've positioned yourself. We have a whole part of what we do that is positioned very far in the future. Because we work on intellectual property and not necessarily on product, by our nature we have investors who tend to be more patient. That allows us to operate in a domain that is further out in terms of its economic value. Other companies do this too. If you're big enough, you can invest a good amount in research.

A company like General Electric, for instance?
Or Microsoft, who has a pure research group. It's actually one of the largest research groups in the industry, and that's because they have a lot of money. We can push even further out, because people's expectations aren't that we are going to produce the product, but we are going to produce the infrastructure to allow other people to create products. In that sense, we can expand the definition of what is economic to think about. I think that's valuable.

If you have to take so many leaps, then how do you gauge risk?
Ultimately, it's similar to taking that stack of papers and dropping it off the top of a staircase, right? There's a bit of "who knows?" and reality will eventually tell you. A lot of what we do is roadmaps. We can sit down and think about—and we've done this—with the rising costs of health care and the shift to chronic diseases and the change of demographics in civilized countries and the way socialized medicine is working, really what is going to happen to health care in the next 10 or 20 years? What needs to happen? What will be the economic pressures and therefore where are innovations necessary? We can think about that without the constraint of, "What is our business today?" In that context, ideas have a much purer value. For example, if an idea requires a complete change in the way socialized medicine works, well, OK, that's a pretty risky idea. It has to be a really fantastic idea to change something like that. That context, both what's happening today and the pure form of what needs to be solved allow us to try and assess that risk.